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NAZAY v. MILLER

April 19, 1991

RICHARD NAZAY, SR., PLAINTIFF,
v.
L. MILLER, BETHLEHEM STEEL CORPORATION, AND MICHAEL P. DOPERA, SECRETARY INSURANCE BOARD BETHLEHEM STEEL CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Caldwell, District Judge.

MEMORANDUM

The plaintiff, Richard Nazay, Sr., a retired employee of Bethlehem Steel Corporation (Bethlehem), brought this action under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., to recover for the partial denial of hospitalization benefits under Bethlehem's health insurance plan for retirees. The action had been filed before a Pennsylvania District Justice but was removed to this court by the defendants, L. Miller, a Bethlehem employee at its Steelton plant involved in insurance matters, Michael P. Dopera, the Secretary of the Insurance Board under the Social Insurance Plan of Bethlehem Steel Corporation and Subsidiary Companies, and Bethlehem. We have jurisdiction pursuant to 29 U.S.C. § 1132(a)(1)(B) and 1132(e).

We are currently considering the defendants' motion for summary judgment and what the plaintiff has styled his "counterclaim for summary judgment." These cross-motions will be evaluated under the well established standard. See Williams v. Borough of West Chester, 891 F.2d 458 (3d Cir. 1989).

The facts are not in dispute. For many years Nazay has had a bad heart and in the months prior to his hospitalization in June of 1989, he was experiencing shortness of breath. The plaintiff consulted two physicians who determined that he had to be hospitalized for treatment with a drug which would strengthen his heart muscle. Plaintiff was in the hospital from June 22, 1989, to June 29, 1989. The bill came to $7,438.39.

It was subsequently submitted for payment to Bethlehem's health insurance plan for pensioners, a welfare benefit plan within the meaning of ERISA. The treatment was found to be medically necessary and there was no dispute about the amount of the charges but the Insurance Board refused to pay the entire bill. It deducted $2231.51, thirty per cent, because plaintiff had failed to obtain precertification of the hospital stay in violation of the following provision of the insurance plan.*fn1 Captioned "Precertification Procedures and Concurrent Utilization Review," it provides, in relevant part, as follows:

    Whenever you . . . are to be admitted as an
  inpatient on a non-emergency basis to a Hospital
  . . . a precertification request must be
  processed prior to the admission. . . .
    If you are admitted to any facility requiring
  precertification on an emergency basis, the
  certification process must begin within 48 hours
  of the admission (or as soon as reasonably
  practical under the circumstances) unless such
  requirement is waived by the Plan Administrator.
    If you fail to obtain precertification or
  certification as described above and the
  admission or services rendered are determined to
  have been medically necessary, a penalty of an
  additional 30% of the Covered Expenses will be
  applied.
    If you fail to obtain precertification or
  certification as described above and the
  admission or services rendered are determined to
  have been not medically necessary, the admission
  or services rendered will be considered
  non-covered expenses and any charges incurred
  will be your responsibility.

(Summary Plan Description at p. 28, attached to the affidavit of Charles F. Collins) (emphasis in original).

The rule was adopted to reduce the risk of unnecessary medical care by allowing the Insurance Board to review proposed care before it takes place. The defendants therefore argue that the penalty cannot be considered arbitrary or capricious, the standard the defendants would apply to the Board's decision in light of the plan's delegation of authority "to interpret and construe the provisions of the Plan . . . and to decide such questions as may arise in connection with the operation of the Plan." (Summary Plan Description, ¶ 2.28 at p. 47). See Stoetzner v. United States Steel Corp., 897 F.2d 115 (3d Cir. 1990).

The plaintiff does not contest the application of this standard to the Board's decision at issue in the instant case. We will not make an issue of it either, since it appears that the Board's action cannot be justified even under this lenient standard of review.

The plaintiff's position is that the precertification penalty requirement violates "public policy" by arbitrarily and capriciously imposing a 30% penalty for what the defendants concede was medically necessary treatment. Plaintiff argues that the penalty is excessive and that it does not serve the Board's stated goal because the Board has the authority in any event to refuse to pay unnecessary medical costs. Thus, the penalty only serves to deprive plan participants of coverage to which they are entitled.*fn2

The plaintiff's public policy argument fairly encompasses a claim that the Board's imposition of a penalty violates the fiduciary duties imposed upon it by ERISA pursuant to 29 U.S.C. ยง 1104(a)(1). That section ...


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